International Reserve Management and Firm Investment in Emerging Market Economies

Joshua Aizenman (), Yin-Wong Cheung and Xingwang Qian ()
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Joshua Aizenman: University of Southern California
Xingwang Qian: SUNY Buffalo State University

Open Economies Review, 2025, vol. 36, issue 2, No 5, 503-540

Abstract: Abstract We examine the effects of active international reserve management (IRM) conducted by central banks of emerging market economies (EMEs) on firm investment in the presence of global financial shocks. Using firm-level data from 46 EMEs from 2000 to 2018, we document three findings. First, active IRM is found to affect firm investment positively. The effect strengthens when the magnitude of adverse external financial shocks increases. Second, financially constrained firms, compared to unconstrained ones, are less responsive to active IRM. Third, we find that 30% of the causal effect of IRM on firm investment is mediated through the country credit spread channel.

Keywords: F3; F36; F42; F61; G31; International reserve management; Firm investment; Global financial shocks (search for similar items in EconPapers)
Date: 2025
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Working Paper: International Reserve Management and Firm Investment in Emerging Market Economies (2021)
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DOI: 10.1007/s11079-024-09768-3

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